Salaries

Beware the CPA Exam Bonus Clawback

You just handed in your notice and finally pulled the trigger on resignation from public accounting. It’s both liberating and terrifying. Your email box fills with things you have to do before you leave. It’s a mix of run-of-the-mill farewells and requests to set up an exit interview and transition meetings for each of your clients.

And then, you get this:

Repayment Agreement Monies Due

Dear XXXX,

This letter serves as notification that as a result of your decision to leave the Firm you are required to repay monies owed to the firm.

You were paid a CPA Incentive Award of $5,000 on 1/31/20XX. Per the terms of your Incentive Award Form, you are required to repay the Incentive Award in full to The Firm within one year of payout date you terminate your employment. Since your departure date from the firm, 12/14/20XX, is within one year of your payout date, full repayment of the Incentive Award is required.

The total amount due back to the firm upon your termination is $3,235.50.

IRS regulations require that if monies were paid out in subsequent years, then you are required to pay back the gross amount less FICA taxes. Once the total amount due is received, you will be issued a revised W-2 (W-2c) so you can make the appropriate adjustments to your Federal and State Taxes.

The Firm reserves the right to pursue collection of any balance not paid within 60 days of termination unless otherwise agreed to.

Seriously?

Unfortunately, yes.

You finished the CPA exam and are rewarded with a generous $5,000 bonus. Go you! But it has a few strings attached. The most important is that you can’t quit within the next year.

Sure, the policy seems fairly clear when you initially received the CPA exam incentive. You must stay for one year. Period. There’s no vesting for a partially completed service period.

The ramifications of this policy are not fun.I know from personal experience. And, if you want to avoid the misery of a bonus clawback, learn from my experience. You don’t want to go through it too.

First, I effectively paid to quit since my final paycheck didn’t cover the amount of the bonus repayment.

Second, I was frustrated that even though I had passed the exam and submitted my paperwork one year prior to quitting, the bonus didn’t get processed promptly and paid out until the end of January. I have a feeling this lag on the payout was on purpose, but maybe I’m still bitter.

And while that $5,000 (or, $3,235.50 after taxes) seems trivial in the grand scheme of life, it was a lot at the time. I was just lucky I had the money in the bank to write the check. I suspect not everyone has the cash sitting around. For example, I know many people used it to pay off some of their student loans. Others use it to foot the bill on an extravagant “the CPA exam is over forever” vacation.

Generously, HR did offer to set up a payment plan, if I needed one…

It’s clear that the Big 4 do not market their exam policies much and I’m sure the stipulations of the service requirement are not advertised. Plus, the threat of owing your firm money if you think about leaving is a sure way to increase retention. I know it made me think twice.

Moral of the story: If you plan on leaving your firm after getting a bonus, don’t get caught off guard. Either tough it out until the day your bonus paid out or be sure you have the cash.

I’m curious, has anyone else experienced this at their former firm (Big 4 or not)? What other incentives and bonuses are clawed back by firms?

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That’s interesting…didn’t know that this could happen. Got my bonus in November ’16…no intention of quitting, but that basically means that I HAVE to work through two busy seasons. Interesting.

rub

This is probably a benefit if you pass the exam before starting, or shortly afterwards, which gives you a stronger likelihoood that any restrictions won’t hold you back.

If I recall, there wasn’t any vesting period when I was at my prior firm, but I don’t recall if that changed since…

OldRetiredAccountant

When I passed the exam (in 1983) my passing bonus was $600, before tax. Been a little inflation since then.

CPAdragon

I guess you had already agreed and signed a contract with your next employer. My advice if otherwise would have been to ask for a sign on bonus that covers the amount you have to pay. (My assumptions are based on what is common here in Asia so the same logic may not apply over there in the US.

B4Senior

I left PwC a couple months after receiving exam bonus, with no claw back.

kodos _

I’m a bad boy, but I would have taken the payment plan and then not paid. Big firms write off client receivables all the time. Very little chance of them going after $3k from a former staffer.

This practice of clawbacks should also serve as a reminder to others contemplating quitting. Least risky move would be to dealy your notice date.

mchan1

It depends on the company esp. if you signed a contract which many may enforce but that’s known for years so it’s not new.
If the company pays for any benefits like paying the bills so you can take/pass the CPA exam, then expect to stay at the company for a little longer before moving on.
It’s no different if the company paid for one’s MBA. Don’t leave so quickly or else you may have to repay the benefits but, most importantly, read any contracts before signing.

Dr. Dre

Yes this is normal and is present at my big 4 firm as well. It’s in the fine print of policies but was quite blantantly presented when applying for the bonus.